Requlred Information

Bentler Industries provides high$-$technology navigation and communication equipment for the aerospace and shipbuilding

industries. It is organized into two divisions, Aeronautics and Marine. The division presidents are given wide decision$-$

making authority that covers operations, marketing, and asset acquisition and disposal. Bentler evaluates the division

presidents on$,$ among other things, ROI in their respective divisions. ROI is based on after$-$tax divisional income and

beginning$-$of$-$year assets. Divisional income includes allocated corporate overhead.

For the most recent year $($year $3),$ data from the two divisions shows the following:

The tax rate applied at Bentler is $20$ percent.

Looking at the ROI results for year $3,$ the president of Aeronautics Division complains that the division is evaluated unfairly because of

the accounting rules that R&D expenditures be expensed in the year incurred. The president believes that the type of R&D performed

in both Aeronautics and Marine Division generate benefits over a three$-$year period.

In order to consider the president's complaint, the company considers some additional information. First, divisional balance sheets as

of January $1,$ year $3$ follow.

Historical information on R&D expenditures follow here:

Requlred:

a$.$ Compute the economic value added $($EVA$)$ for each division for year $3.$ Assume that the R&D expenditures are incurred uniformly$1.$ Compute the economic value added $($EVA$)$ for each division for year $3.$ Assume that the R&D expenditures are incurred uniformly over the year. Bentler uses a cost of capital of $12$ percent.

$2.$ Which division performed better?